Homebuyer tax-credit extension sought by Congress © ThinkStock/SuperStock

Extra6/15/2010 2:26 PM ET

Homebuyer credit may be extended

With the cutoff to qualify for a federal tax credit fast approaching, Congress wants to delay the deadline for consumers scrambling to close transactions. 

By The Wall Street Journal

Congress is considering an extension for would-be homebuyers who are racing to close home sales in order to receive a federal tax credit.

The real-estate industry has warned that tens of thousands of buyers who rushed to buy homes to qualify might not close before the deadline imposed by Congress, meaning they could miss out on receiving credits worth thousands of dollars if lawmakers don't act.

Congress last fall extended an $8,000 tax credit for first-time homebuyers and added a smaller $6,500 credit for current homeowners who were buying a primary residence. To qualify for the credit, buyers had to sign purchase contracts by April 30 and must close on the transaction by June 30.

But there are so many transactions in the pipeline that the companies responsible for handling the sales, including mortgage lenders, appraisers and title insurers and real-estate brokers, say the last-minute homebuying rush in April has created bottlenecks.

Senate Majority Leader Harry Reid (D., Nev.) last week said he would back a measure to extend the June 30 closing date to Sept. 30 for buyers who had met the April contract deadline.

The National Association of Realtors estimates that from 55,000 to 75,000 homebuyers who are under contract won't be able to close in time to claim the tax credit. The trade group is lobbying Congress to extend the June 30 deadline only for those buyers who met the April deadline.

"Everybody who got under contract at the end of April deserves to get the tax credit," says Stephen Adamo, the president of Weichert Financial Services, a division of real-estate brokerage Weichert Realtors. "For reasons out of their control, they're in jeopardy of losing it."

That is causing heartburn for buyers like Alan Nickelson, a first-time homebuyer who went into contract on a three-bedroom home in Kent, Wash., days before the tax-credit deadline in April. While he was pre-approved for a loan and will make a 20% down payment on the $275,000 home, he says the transaction has been held up because of home inspections and repairs required by the appraiser.

Nickelson says it is "entirely possible" that he will miss out on the tax credit. He says he would have bought the home anyway but that he planned to use the $8,000 credit to offset repair costs. "It was icing on the cake, but it was really sweet icing," says the 52-year-old machinist.

One particular worry is that short sales, where a lender allows a home to sell for less than the amount owed, won't receive requisite approvals in time to meet the closing deadline. Unlike normal sales, in which only two parties -- the buyer and the seller -- negotiate the price, short sales are more time-consuming affairs because they require note-holders to agree on price.

"From February on, I told people, you have no chance" of finishing a short sale by June 30, says Steve Capen, a real-estate agent in St. Petersburg, Fla. But he says clients who began pursuing deals even before that could still miss the deadline.

Real-estate agents say that even "plain-vanilla" transactions are increasingly at risk. Response times from loan officers and appraisers have doubled over the past month, says Kailee Rainey, who works for real-estate brokerage in Seattle.

Lee Barrett, the president of Century 21 Barrett, a real-estate company in Las Vegas, spent part of the week in Washington meeting with his congressional delegation about the need to extend the closing deadline. "The lenders are overwhelmed. The title companies are overwhelmed," he says. "It's just a mad surge of everybody trying to close deals."

At Wells Fargo, employees from other sales divisions are being brought in to handle mortgages, and staff members are working weekends and nights to process higher volumes. "It's all hands on deck," says Greg Gwizdz, an executive vice president at Wells Fargo Home Mortgage. He says the bank has prioritized "every customer who qualified for the tax credit."

A 23% boost

A spokeswoman for Bank of America says the lender is also placing "increased priority" on loan applications submitted before the April 30 deadline. Luke Hayden, the president of PHH Mortgage, a lender in Mount Laurel, N.J., says consumers can help speed the process along by being "very responsive to requests for documentation" from lenders.

Some of the delay reflects new rules related to disclosure and appraisal requirements enacted to correct the excesses of the bubble years. The new regulations have prompted lenders to take extra caution at every step, stretching closing timelines.

The tax incentive was credited with boosting existing-home sales in April by 23% from year-earlier levels, according to the NAR, while new-home sales gained by 47.8% from one year ago, according to government figures.

Become a fan of MSN Money on Facebook

It is unclear how many sales would fall through for those who miss out on the tax credit. Buyers could be hard-pressed to void sales contracts unless they have made their closing contingent on receiving the tax credit or are willing to forgo any deposits.

This article was reported by Nick Timiraos for The Wall Street Journal.

More from MSN and The Wall Street Journal

Rate this Article

Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowHigh
Wall Street Journal on MSN Money